Q3 2020 Atlas Corp (Canada) Earnings Call
Hi, Mike everyone that this conference call is being recorded today November <unk> 2020.
I'll now like to turn the call over to Robert Weiner, How does Investor Relations of Atlas Court.
[music]. Thank you and good morning, everyone. Thank you for joining us today to discuss Atlas Corp's third quarter 2020 earnings.
Due to these calls as I doing that lives in early September I look forward to working with all our stakeholders to ensure the company's performance is well understood and appreciated by members of the investment community. We have a terrific company, which is performing very well as noted in our earnings release.
Please note we released our earnings at a new time this quarter after the close of trading yesterday.
Please refer to the Investor Relations page on the Companys website to reference.
The third quarter release or any other investor materials.
On the call with me today is being changed.
<unk>, Chief Executive Officer, <unk> interim Chief Financial Officer of Atlas core.
Good morning, being on the call during the Q and a session our Atlas Corp.'s fairly stable, so cool Seaspans Chief commercial officer, Peter Curtis.
He spends chief Operation Officer Thorsten Peterson.
I would now like to remind you that our discussion today contains forward looking statements, which are noted on slide two in the accompanying earnings presentation.
Actual results may differ materially from those stated or implied due to risks and uncertainties associated with our business are known risk factors are discussed in our form 20-F.
And our reports on form 6K.
From time to time and in connection with our quarterly financial results, which are available on our website as well.
With this quarterly report you will note that we continue to report non-GAAP measures, which we believe provide investors a clearer understanding of performance ever businesses East third quarter earnings release, this third quarter.
Earnings release contains supplemental financial tables, and information pertaining to our third quarter earnings report includes definitions of non-GAAP financial measures and reconciliations of such non-GAAP measures to the most closely comparable U.S. GAAP measures.
These definitions may also be found in the appendix sees at the back of the earnings presentation, which we will refer to in our call discussion. It can be found on our website. In addition, we have also provided.
Historical reconciliations through 2018, which are available on our website.
During today's call.
They will discuss.
Please turn to slide three Atlas is key investment attributes highlights of our third quarter operating performance and business development. This will be followed by industry update and what we expect to see in the fourth quarter. We will conclude prepared remarks with a review of our financial results and update on our balance sheet liquidity some.
Murray of Q3 and comments on our guidance.
Separately I would like to note that our team will be conducting virtual investor meetings in November on the 12.
18, and Thirtyth and in December on the seven and 14, please contact investor relations to inquire about the meetings and.
I'm now pleased to turn the call over to Alex Corp.'s, President CEO and interim CFO thing John.
Thank you, Rob and good morning, everyone I want to welcome Rob to the Atlas team as our new head of IR and he will be working closely with all our investors and analysts.
Please turn to slide four.
Let me begin by saying I'm thankful that during this difficult times, the Atlas team are doing well and staying safe.
I'm also proud that our teams driving solid performance.
While many industries and companies continue to face challenges.
Alice is uniquely positioned as a long term investment opportunities, which has three key attributes.
First our resilient business model with $4.4 billion of long term contracted revenue and a scalable platform and they've been fully integrated customer centric solutions.
Second our core competencies is consistent operational excellence creative customer partnerships solid financial strength.
Quality growth and disciplined capital allocation.
This is what drives our execution and the results and the differentiate us from our peers.
Third we have been delivering quality growth enhancing fleet composition, and creating greater diversification of our customers through the addition of quality assets with long term charters.
Our third quarter performance clearly if it takes a divergence of Atlas performance, that's compared to our peers.
Our customers are the strongest in the industry all cash flows how much higher quality with long term charters.
He is younger larger and more fuel efficient.
We've seen increased demand for our scalable reliable and flexible services that are unique matched.
This greatly reduced our risk, especially when you compare our profile with our peers, who have shorter duration contracts smaller vessels older age less.
That's found she strength and liquidity.
Overall, the uniqueness of our strategies and the results from our consistent execution makes us the solution provider of choice. However, that's our competitive advantage seems to be overlooked by the investment community.
Our Q3, that's clear evidence of the value creation for both customers and shareholders through our platform strategy and execution.
Topped by this management team about three years ago.
Now, let's look at our results.
Please turn to slide six.
Our third quarter results demonstrate the resiliency of our business model and delivery of consistent operational excellence.
Continued to strengthen creative customer partnerships prudently manage our liquidity continue to return value to shareholders through payments off the 61st consecutive dividend.
The deliberate haulage equals with the acquisition of four more launch vessels all on long term charter growing our fleet to 127 vessels.
And most gratifying, it's our team's commitment to consistent execution achieved through our ownership culture. Our team's performance was excellent and impressive despite persistent pandemic challenges.
Now, let's look at our third quarter financial results.
We have a very stable revenue profile with $4.4 billion of long term contracted revenue, including $4.1 billion at Seaspan and $324.4 million.
[music].
You know that quarter Atlas deliberate total revenue of $386.2 million, we see Spain contributed revenue of $305.9 million and <unk> contributing revenue of $80.3 million.
This represents total revenue growth of 36.6% compared to Q3 of 2019.
Adjusted EBITDA was $249.8 million in the third quarter and funds from operations, that's that Oh was $173.5 million or 68 cents per share.
[music].
I have all increased by 96% and FX Oh per share increased by 70% compared to Q3, 2019, which represents industry, leading growth and significant value creation.
We announced our 61st consecutive dividend payment.
Alice is reaffirming financial guidance for the full year, Twentytwenty and tightening our ranges to reflect increased confidence as we progress through this final quarter with a great finish to the year.
Again these results depicts a much different stories when compared to their peers in our industry. This is the important distinction and differentiator.
Please turn to slide seven now let's look at.
World.
Quality growth enables us to invest in customer solutions technological innovation scale flexibility and our people.
More importantly, create sustainable value for our shareholders by quality, we've been successful growth and when we outcomes for our customers and us.
It's quality growth.
Rove financed with favorable terms for top quality assets at discount to fair market value and with strong cash flow, while maintaining a disciplined capital allocation and strong liquidity.
This quality growth.
So just two examples.
We have added to 13000 to you and to 12000 Teu vessels, which expanded our fleet to 127 total from 112 vessels since the end of November 2019 revenue.
Representing a additional.
1.1 billion U.S. dollars of long term contract revenue over 13% growth in the number of vessels, an 18% growth on a two year basis.
We have expanded the feed through long term charters, adding new world and the larger vessels, while diversifying our customer base.
And with much of the growth come in doing a global pandemic.
This is quality growth.
Part of our distinguish attributes, it's our financial strength and the access to the capital markets. During a challenging environment. This year, we have continued to make significant strides improving our balance sheet.
I'm proud of our team for line, our commitment to the Mormons and sustainability without the capital structure.
We completed our sustainability linked financing, which is the Industrys first did.
This financing added $200 million to our capital structure and you said another innovative milestone.
He'd relentlessly focused on improving our credit rating and cost of borrowing we have also received a triple b minus facility <unk> rating from Kroll ratings.
Now I will comment.
Operations.
Utilization remains very strong at 98.6% at Seaspan and increased to 80% of <unk> in the third quarter.
Utilization is an important measure for Seaspan, however, less so for <unk> at the equipment, it's often transitioning to full field new contracts.
Well if he spent we continue to develop stronger creative customer partnership to achieve when we outcomes.
<unk> is facing some headwinds primarily as a result of the global effects on energy consumption due to the pandemic.
Yes. During this period, we continue working with customers and focusing on the line for long term growth.
Now, let's look at the industry.
Please turn to slide nine.
The container shipping industry continues to operate in a challenging environment.
Yet we have seen a resurgence in charter rates scenes late February March since then we have seen a steady improvement in charter rates.
April nice uptick in Q3.
In past periods of uncertainty.
You didn't see this type of a rapid recovery.
We attribute this to greater sophistication and market combined with four positive drivers.
First today's balance of supply and demand second and increasing global demand profile third increasing credit health and operating performance of the miners.
And for the ongoing maturity of the market.
We seaspan contributing about 85% of the total business outlets is fairly insulated from short term market fluctuations.
Our entire 127 vessels fleet have secured charters in place and we have performed consistently well through 2020.
Despite a global idle fleet peaked at 12% in May and has now contracted to less than 2%.
We some tailwinds in the market the credit quality and operating performance of our customer base is improving.
Major rating agencies switched their views from negative to positive outlook on the industry and upgraded the credit ratings of many major liners.
You can see on slide nine the projection of global recovery in Twentytwenty, one is fairly strong with forecasted growth in a range of approximately 6% to 9%, which should support a continuing strong performance for seaspan.
We're not seeing many analysts become more positive about engine industries of rising demand and rates.
Limited supply of large vessels, the order book, extending a charter tenders and with some analysts calling for higher equity multiples supported by a general favorable outlook over the medium term.
As the industry leader with key Differentiators and consistent performance outlets should be a leading manufacturer over the long term from all the Telx means I just mentioned.
Now I would like to review our financial performance for the third quarter.
Please turn to slide 11.
We delivered again this quarter.
Catalyst reported consistent solid performance given by execution. The addition of a PR and the significant growth our fleet compared to Q3 2019.
These are the Companys key performance matrix assets.
That's that's all of $173.5 million, an increase of 96% compared to the third quarter of 2019.
Perfect all per share was 68 cents per common share stuff at all represents Atlas performance after interest and tax.
Adjusted EBITDA was $249.8 million with an increase of 38.8% compared to the third quarter of 2019.
These are unparalleled results.
Please turn to slide 12.
We are very pleased with our performance and continued progress we executed very well on our initiatives and the stayed focused on leveraging our five key competitive competencies to deliver sustainable value to our customers and shareholders.
Revenue increased by 36.6% to 386.2 million for the third quarter when compared to the same period in 2019.
77.6% of the increase in revenue was due to the contribution from my.
She spends revenue increased 8.2% to $305.9 million due to the expansion of our feet.
The 38.8% year over year increase of adjusted EBITDA was driven by revenue increase as I. Just described and also benefited from lower than expected G. a name.
The 96% year over year increase of EPS.
Oh also reflects the revenue contributions and the lower interest expense.
See expenses vessel utilization remains strong at 98.6%.
<unk> utilization was 80%, reflecting the Mexicali project for the full quarter.
She spends fleet capacity as measured by two you increased by 18% compared to the third quarter of 2019, we continue to see opportunities to execute quality growth of our feet.
A very important point in this table our long term contracted revenue at the end of the third quarter was $4.1 billion for Seaspan and $324.4 million for ATP off at a total contracted revenue of $4.4 billion, which seaspan, having an average remaining lease period of approximately four years.
These are key points that investors should take note off as we do not see others in our space equally positioned with such resiliency.
[noise], Please turn to slide 13.
Our focus is on disciplined capital allocation, our balance sheet is strong with capacity and flexibility to ensure quality growth.
We made significant strides.
Given our balance sheet and capital structure.
Specifically the sustainability linked loan consists of $200 million of term loan with a 10 or six years.
The expanded portfolio financing program is now comprised of $300 million revolving credit facility and approximately $1.5 billion of term loan commitments.
With staggered maturities between 2024 and 20.6.
We have strong liquidity of over $427.6 million, including Undrawn credit facilities.
You will see on the slide that we have made meaningful financial improvement since the new Board and management team you saw that Seaspan and now continue eating Atlas. We have improved two key balance sheet measures, which is that assets and net debt to adjusted EBITDA.
It is important to note that our performance, which has to be very consistent and resilient was not matched with similar results in the industry.
We believe this is a very important milestone illustrating outstanding results, which were clearly evident by this quarter.
Please turn to slide 14.
With our continued solid performance in Q3, we are reaffirming our financial guidance for Twentytwenty.
Please recall that we have revised our guidance upwards during our Q2 earnings today, we reaffirm our guidance and tightening our ranges for expected revenue and adjusted EBITDA.
But he spent not only 99% of the midpoint of Twentytwenty guidance contracted revenue as of today, highlighting our minimal spot exposure.
But also about 85% of the revenue for Twentytwenty. One is also contracting.
This is different than others, who may rely on continued rising rates longer tenors and favorable renewals.
Our guidance for the full year Twentytwenty, if the revenue in the range of $1.21 billion to $1.22 billion for Seaspan and $195 million to $215 million for <unk>.
Adjusted EBITDA in the range of $770 million to $795 million for Seaspan and $115 million to $135 million for <unk>.
Please turn to slide 15.
Our last topic today is the one we hope Oh listen there's a note and come to appreciate it.
Especially those of you who may be joining our call for the first or second time.
We believe Alice represents an excellent investment opportunities across all market cycles.
Our business model is resilient stable and consistent with $4.4 billion of long term contracted revenue would see spend having an average remaining lease period of approximately four years.
We have developed and consistently executed our core competencies.
Which uniquely position Alice within its industries.
These competencies combined with our deep customer partnership, where we work hand in hand to solve their needs and grow together.
Our strong financial position with a solid balance sheet and full access the capital enables us to partner with our customers for quality growth opportunities.
Quality growth as I spoke about enables us to invest in customer solutions technological innovation scale flexibility and our people more.
More importantly, execute on the right opportunities to create sustainable shareholder value.
I will close my remarks by saying that I'm very proud of our team's excited by our collaborative to ownership culture and look forward to reporting on our continued quality growth and creation of the VAT.
For all our stakeholders.
Our team is now available to take your questions. Operator, we would now like to open the line to questions. Thank you.
As a reminder, classical question, we'll need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the culinary roster.
Our first question comes from the line of Chris Wetherbee from Citi. Your line is now open.
Hey, Thanks, and good morning, guys I guess I wanted to start a little bit on the bigger picture about the containership fleet and sort of where you see that Kelly so.
We've talked a little bit about this in the past, but I wanted to get a sense you're growing at close to a 10% clip at least in 2020 as you think out to 2021 2022 with the constrained order book supply demand arguably in a very reasonably good balance or maybe as good as it's been in quite some time can you talk about sort of how.
Relatively you think you can grow the fleet and how you might pursue that is there a target that we should be thinking about in terms of maybe 10% is a customer dependent can you just talk a little bit more detail about that.
Thank you Chris Good morning, yes, the in terms of Seaspan as we have demonstrated over the past 12 months that we'll be able to growing our fleet by 18% in terms of that to you.
Looking at the market, we see that you know we will be able to continue to grow in a similar even more.
In a sense that that we today are very well positioned for that growth first of all today, we have a platform. The platform is very scalable as it as as of today with the acquisition of 15 vessels, we actually had a net of a one head count reduction from an operational.
Standpoints, so that you can see the scalability of our of our you know platform and secondly are you looking at the type of.
Gross opportunities is really driven by our customers, it's a customer driven growth because all of these acquisitions are driven by the demand of our customers none of them on a speculative basis and certainly if you're looking at that you know that our.
Owner, operator space today, Seaspan as the world's largest owner operator, we only steel account for less than 9% of the market with the increasing demand from the line of customers looking for scale flexibility and quality as well as you're looking at the increase in regulations.
If I'm, whether I am more all from yes fee perspective, I think it really requires a lot of investments in terms of people a system processes and this is where I think our industry that really require us to have to scale and seaspan today that has that scale. So with that being said I think that today, we are very well positioned.
In looking at the pipelines of opportunities I think whether it's from our peers looking at from a line or looking at from the financial institutions I think today. They all I think that looking for Seaspan as the market leader and also the consolidator to continue to provide the.
Scale flexibility quality to our customers.
And you know in terms of the specific numbers or we don't really have set up a number rather we are we are very disciplined in looking at you know the quality growth what I mean by quality growth. This is first of all looking at the asset or asset quality.
Looking at what we have done over the past 12 months those are the top quality assets and then secondly, we're looking at is the the value that you paid for we in general I think we are paying at a discount to the fair market value certainly we're looking at is the you know the attached quality.
The cash flow all of those vessels are attached with the quality long term contract and fourthly. If we are looking at these assets has actually a very high residual value because that is very important as the asset operator, you need to have a strong cash flow and also a need.
I don't have a strong residual value as from those perspective, I think today, we're going to you know we're going to continue to enhance our.
Investment criteria and you know.
Continue to looking at you know the.
Opportunities that present as tower cells. Overall, we are very very you know.
I would say encouraged by what is the it you know what is what is out there.
Okay. Okay. That's helpful. And then what do you think about the the Seaspan fleet is there an ability to in the current market is their ability to potentially increase duration on the average charter remaining I guess in other words, what is the charter market look like right now just given the relative tightness that we're seeing and.
Where demand is you know are you starting to see.
[laughter] depth return to the time charter market.
Maybe vessels that are coming off contract.
Yeah in the current market, obviously, you know when when the when the market becomes tighter there's more tendency to enter into a long term contract, but if you're looking at what we have done over the past 12 months in the in the height of the Cove, It and we were able to act.
Really assigned all of those 15 vessels on a long term contract with about half of those west sources between the 10 years to 18 years and the other half is between five to eight years. So that isn't the most difficult time, we were able to actually sign a lease up you know assigned to it.
<unk> vessels with a long term contract when the market environment improves as we see right now, yes that will be even I would say have a higher tendency I think we'll be able to enter into longer term contract.
Okay and then last question for me just kind of dovetails into the first question, which is you know do you.
How do you think about sort of the capital available for potential acquisitions, and I guess I'm thinking.
Well think containers, but maybe outside of containers I don't know if there's interesting opportunities outside of the container shipping market that you see today.
But sort of how much capital roughly speaking do you think you have to put to work and would most likely end up staying and campaign are going elsewhere.
Okay.
Yeah, I think that's a very good question you know full four outlets today, we have about over $650 million of the cash from the operations and then if we're looking at F. at both the numbers is even higher if we're looking at what we have done over the past three years.
Yes, I'm very proud to say that we were able to actually strike a very fine balance between return the capital to the shareholder.
The leverage and at the same time, we've grown our business. So you know if we if we are looking at the past as a reference in the future in in terms of the continued strong cash flow that is generated by the business I think today, we have ample capital that's required to grow the business at the same time.
Time today I think as you know as we continue to grow our business. We also taken advantage of the favorable financing terms that today see Spencer receiving from the market in general as you can see what we were just recently you know just a a close that $200 million of a sustained.
Ability to linked alone and also in general our financing the secured financing cost it's very competitive at a you know with the low liable plus the spread this is very very competitive. So it is a very favorable financing environment for us and plus that we have a strong.
Cash flow from our existing business, so we see that.
We have a strong liquidity and also a very diversified.
Access and capital to their market. So therefore, I think in terms of the gross that up for sure that we have the ample ample liquidity in the capital to grow not in terms of the.
The silos, whether whether we're looking at other verticals I didn't today with Atlas in place we have.
Two very.
No scalable platform when this the container shipping, which isn't a merry time Mary Mary time. The other one is is is see energy.
Our platform. These are the two platforms that we have to each of them.
In a market leader position. So you know if you're looking at today Seaspan as I said it earlier, there's a lot of opportunity for us to continue to consolidate in the market and have those quality growth. It's the same thing with a pea on I'm a PR today is the leader in the past power, but I think it you know as you continue.
You need to grow the business, there's a apia, we'll have more opportunity to broaden.
Broaden its offering in the marketplace. So with the with these two platform and today, we have ample capital allocation opportunities for the quality growth, but if we have other you know brody cost that opportunity just come up and I believe that those opportunity it has to be the right operator.
Unity in the right time with the right return, but in general when we're looking at them you know capital allocation. We do we do hold ourselves in a very strict criteria.
Criteria with the very strict discipline, so any investment that we make we don't make the investment or make the growth for the sake of growth and we were looking at them from a strictly you know I think the quality and return perspective.
Okay. Okay. That's helpful. I appreciate the time this morning. Thank you.
Thank you Chris.
Thank you. Our next question comes from the line of Randy given from Jefferies. Your line is now open.
Hi, being gentlemen, this is Chris Robertson on for Randy Thanks for taking my call.
Hey, good morning, Chris.
One of the Claude.
I wanted to follow up on on Chris' question regarding fleet growth. So you talked about the opportunities and a platform for growth, but kind of on the flip side of that when you're thinking about fleet.
Fleet renewal and the average food fuel efficiency across the fleet and in kind of a pre IMO 2030 world.
Do you have any plans to divest some of the older vessels that are maybe approaching 15 years or older and we'll be adding their time charters in the next year or two what are the what's the strategy with regards to that aspect of the fleet.
Sure. Thanks, Chris.
As we said you know.
Highlighted in our previous earnings.
Earnings call Seaspan is very proud of being the best in class. Operator, we are the best you know operating operating the assets under any you know a a market cycles as you kind of see over the past three years through the different.
Economic political cycles and also now it with a pandemic. So the answer to that is that we intend to continue to operate.
You know all vessels in the best way, that's at that differentiates ourselves in.
In a in a marketplace and this is also evidence today by our customers the liner customers today really consider seaspan as the top premier operator, so in terms of those vessels not only we have the best operations, but also we actually actively improve.
Those assets. These these vessels through the modifications of these vessels for example, we do the boast about optimization.
We do the propeller redesign, we equip them with the APPM, we installed a ballast water treatment. So overall with these vessels while they are aging, but we'll also continue to improve to modify the vessels through our technology expertise to be able to use show.
Sure that these vessels, although their age wise might be older but they will remain in the top you know.
Operational condition and this just said you know what we do for for living and this is what we're good at it. So therefore that is why today with the 127.
Vessel fleet all of these vessels you know managed by Seaspan ourselves. So we are very confident and able to manage these vessels in the most competitive efficient way.
Gotcha. Thanks spring.
On Hum.
A pure energy side of things, so being roughly half of the assets are on the longer term charter.
It looks like the three projects ending in the Mexicali region. In September. So can you talk to your expectations for utilization in coming quarters, and how we should think about that.
Sure absolutely I think this is a good question and I'm sure that many of you wants to have a better understanding of a you know a PR because this is a new to the to the Atlas family. So maybe it would be best.
Two for me to give an overview as to you know who is a pea on now and what APN wants to be and how do we get to get to the two to where we want to be.
So you know a pea on today provides the turnkey aero due to you know gas turbine rental solutions to principally a suited for emergency and a peak in a you know power requirements.
Apia, primarily serves as a you know gas.
Gas turbine rental company.
In addition to providing operations and maintenance services, which effectively it's a power bank for utilities and industrial companies.
Apia also develops and operates at CPI IP projects.
Just that currently projects that we have under long term contract in Argentina, and banquet attached with a contracted revenue of $325 million. So.
So this is where we are right now as you correctly point out half of that the business is under long long term contract half of it it's on the spot, but going forward, we really want to expand our offering and to become the leading provider of the bridge to long term power solutions. That's what we want to be then the question is how do.
We get there you know first of all it today as as we can see the Apia has a platform. So we're going to lever the leverage the existing structure. So that we will continue to be the best the market leader in delivering the cost power and at the same time, we expand our scope of our offerings to.
To provide these rich to long term power solutions, specifically in the in the short term I think that we're going to continue to work to non existing.
Assignment the contracts by extension and also we continue to both both you know Reactively and also proactively looking for those power demand status that you know.
Asking for high capacity asking for reliable quality and also the fast power, but also with a very high emission standards because let's remember we have the you know that the technology. That's far you know five.
Advanced compared to to our peers.
Then at the same time, we're going to also you know to build strengthen our commercial organization because.
Because you know to develop the long term power of a project we would need to have you know that this strengthened the complementary skill.
Skill sets flower business development team and also we're going to be looking at other ways of expanding the corporations a partnership joint ventures with the.
Other industry players can leverage their let's say the skills and resources, including C spend itself because as you know seaspan is the leader in Maritime and I think we are also potentially can looking at exploring those type of Mary time, a power solutions to the customer.
And over the longer term that we will be also exploring long term projects.
That will be you know using the revolt <unk> renewable solutions, which will ultimately transition a PR to a fossil free energy company with a long term project. So.
In general looking that the utilization for specifically next year I would think that you know a.
At least half.
Half of those contract Hafetz as the capacity so I'd under long term contract and in looking at the them that that overall energy demand and let's assume that will be the same as what we have this year and I think that we should be able to have the similar if not higher.
Our utilization rate.
And in terms of the specific guidance that we're going to be providing done during our Q4 earnings release.
Okay. Thanks for that thing and one final question on a PR for me, it's a little bit of a detailed question, but can you speak to the tax consideration differences between a PR energy and Seaspan.
Yeah [laughter].
That's a good thing is seaspan because as the maritime in general as you know that that is a such tax advantage so that they.
We do not pay taxes that this is illegal that just that the tax rules et cetera set up in such a way in Apia of course, because the operation is in a different jurisdiction each different jurisdictions has different sets of.
Different type of import export.
VIP and also income taxes. So therefore, apiay tax is fully subject to the local jurisdiction taxation as well as.
At the outset that Abe.
Okay.
Corporate tax that is subject to whatever the Jewish situated jurisdictions. The same so that is the difference between April and Seaspan.
Gotcha. Thank you appreciate it thanks for taking my questions.
Thanks, Chris.
Thank you. Our next question comes from the line of Ben Nolan from Stifel. Your line is now open.
Yeah, Hi, this is Frank Galante on for Ben.
I wanted to follow up on a PR, specifically dig into the unit economics of the mobile gas turbines.
I understand you guys are trying to do some longer term power projects that are more permanent on a more permanent basis, but specifically the mobile mobile gas turbines.
[noise] what.
What are the turban cost and what range of utilization do you expect over the life of the asset and.
One of those returns that you expect.
Yeah. Thank you Frank.
In terms of the gas turbines the utilization because of the you know that the nature of mobilization and demobilization. So the utilization is largely depends on the term duration of the of the contract. If that you know this is similar to.
To the vessels if you have the vessels on a short term charter you will have these kind of you know position reposition him same thing with the gas turbine that if we have a shorter.
Shorter term assignment. The contract then you have the mobilization and demobilization. So from an industry standpoint today. If we are looking at you know some other participants in the industry. They might use that different technology that is different from gas turbine and I think the utilization rates.
Somewhere between 50% to 80% that would be that that will be the average range and I think today.
It's you know it's right in that range in terms of the you know.
In terms how were you asking the question of the range right that the range of the power generating I think that the range of of these turbines can generate somewhere between 25 to 35 megawatts per you.
Yes, you know per turbine and today, we have we have total of 30 of them and of which about 16, it's on long term contract and 14, it's on the.
Short term contract basis.
Okay, and so to that to that end of you guys have 30.
How big a do you expect to grow that business and I guess.
More importantly, how big is that market.
Because you get to 100 turbines is that feasible <unk>. It appears only 15% of that code at the moment.
Their aspirations of growing that.
30%, 40%.
Or I guess, that's kind of a bigger question on where do you allocate between.
PR and C. fan.
Yeah in terms of a capital allocation as we said before we're really looking at each every investment opportunities whether it's within the industry of for example, c. span all across the different business between a PR and Seaspan, we always looking at what is the best.
Ways to allocate the capital at that generates the maximum return for our shareholder specifically on the gas turbine. Your question is are we going to grow the turbine to 100, Oh, we're going to grow into some other technology. The answer to that is really as you as we said it before we're going to try to.
Broaden our product offering so while we continue to focusing on the gas turbine, which is what we're doing the best in the market at the same time for us to be able to broaden our offering so that we can diversify and provide a broader offering to our customers in a similar to the way up we looking at.
Our Seaspan fleet, if I only have 10000 Teu vessels without have 14 12 14 8000. So my offering is pretty limited. So you know if you apply that to a PR, we'll be looking at you have a different type of maybe technologies away.
The different type of fuel solutions. It all depends on what our customer ultimately wants and what the investment.
You know return that that it will bring to us and that's what the basis, we're going to look at the growing the business, but ultimately as we said our goal is to broaden our offering so that we can get a a I would say longer term solutions power solutions to our customer and that is our goal.
Oh and of course any of these kind of investments is subject to the same.
I get that the return requirement.
Okay, great. Thank you very much.
Thank you.
Great. Thank you.
Our next question comes from the line of Ken Hoexter from Oh, Oh. Your line is now from.
Okay great.
Good morning, Ben can you talk a little bit about just picking on a PR for a second if we look at your revenue forecast and the kind of decline you're expecting it to the fourth quarter, maybe talk about whats built into that and the exposure you've got on on a PR. Thanks.
Thank you Ken.
As I mentioned earlier, the fourth quarter will be slightly different from the third quarter. Because we just finished the Mexicali project, which it was a full quarter utilization for eight turbines.
During the third quarter as we are in the process of de mobilizing those those turbines. So the utilization for the fourth quarter will be lower than what we have in the third quarter that is why you see the revenue numbers will be lower.
Lower than the third quarter.
Perfect and then when you think about the.
Moving to the turbines or future utilization are their geographic regions, you're focused on for a PR.
Is there a large emerging market exposure any thoughts of diversifying the end markets.
Yeah, we don't we don't specifically focusing on a particular geographic location, rather we do look at each every opportunities with the same criteria. The criteria is looking at economic return risk adjusted returns looking at yes, I know what the what the specific.
Counterparty counterparty risk we have to look at the you know the.
Hi, I mean, they require looking at the compliance environmental and looking at the safety of our people. So those are the things that we really take into consideration and the one thing that is very different from before is that with the you know a as being part of the Atlas family.
We definitely much more focusing on risk and risk adjusted returns over any opportunities.
Hi, This is big it's David so I might might make a comment.
Pointed out to the Investor World as well that one of the things. The board is particularly impressed with this year and exemplified in the third quarter is it the company Alex has actually outperformed the original guidance and in print increased the guidance. It is in fact, even tightened it now going.
Forward.
In a year of coated and I think were still being has always said his team at maintaining the.
Belief that that it's it's the company's obligation to find a way what do we make a commitment we will find a way to get there.
At least I emphasize that as they've had to absorb on the order of $40 million to $50 million of Cobi costs.
And yet they are still performing well.
Watch a lot of companies in the market, who have basically just slash their earnings blamed it on coated.
And I get that in certain cases, they couldn't overcome overcome it.
But it's pretty impressive given the downturn to shipping industry had in the first half of the year.
All the complexities came with cobot crude crude changes things of that nature dry docking issues and.
And then you got to take your team has to be really credit in fact it.
You are actually going to exceed earnings this year notwithstanding absorbing.
That amount of cost so it's a it's.
You wouldn't say they've been through a board perspective, I think it needs to be pointed out.
Thank you David.
Thanks, David I appreciate the improving.
Improving outlook as well.
And just obviously as being mentioned at the start kind of a newer newer line of business for for the historical Seaspan.
Followers.
Big maybe just talk switching over to the C. fan side can you talk a bit about utilization really ramped up obviously, given the tightness now.
You know over 99% what do you view it as kind of a healthy operating normalized level.
Your thoughts on how you can capitalize on on those higher spot freight rates. If at all and then maybe I think you kind of touched on a bit of this earlier, but not really you know all the way, but your thoughts on acquisitions, you know or as you see others struggled do you look to acquire.
Large scale fleets that might be is that something you think might be in the offing in terms of as opposed to kind of the couple of vessels you've been doing maybe are there others that are struggling where you can really consolidate.
A little bit more faster in the industry is that it.
Thought at all.
Sure sure.
In terms of the utilization as has been actually have a very long standing track record of the high utilization I believe that.
If we're looking at a utilization at <unk> today, we have about.
90, 98.6% of the utilization and this has actually you know being on average for the past you know I would say 10 or 15 years is always been between 90, 97% to 99% so given the improving market environment.
We anticipate that Oh utilization will continue to improve and I think last year at one point, we had about close to 99.5% of the utilization.
One specific I think the characteristics of our fleet as we highlighted before is that we have the majority of our you know.
So it's on long term contract and if we're looking at as I said it earlier, if you looking at Twentytwenty. One we have already about 85% of our revenue is under under long term contract. So therefore, you know at the market continue to improve for sure.
That we will be able to continue to also improve the utilization and improved more than I think the our peers because that you know we have a we have a longer term contract basis higher longer term contract basis.
In terms of the spot rate the rate right now, it's very high and I think that that is a good news for FFO for the industry as a whole but at the same time again you know we also have a reasonable amount of a spot that is up for next year as I said, it's about it's about 15.
Send off our fleets on a spot charter and I think as the rate goes up and then we will be able to take the benefit of those to increase the rate us well on acquisition side.
Today as I as I said that the C spend really have a very scalable platform the way realistically for us to grow our fleet is most likely at looking at acquiring a fleet instead of for business.
And then depends on the opportunities whether we're going to buy a fleet of few vessels is really for us not much of a difference because we do have a very standard died process that allows us to be able to cross to to be able to execute on these type.
But the acquisition a very effective way once again this year, we actually acquired 15 vessels. Some of it's in the fleet some of them. It's on a one or two vessel basis.
But all these vessels are actually being you know executed while we are managing our business as I said earlier, we actually have a net one head count reduction. So today, our platform is very well positioned to consolidate and continue to grow our fleet and as I said it earlier.
That we really see a lot of opportunities in the in the coming up in the coming months and year.
Great. Thanks, Mike.
Okay. Thank you.
Thank you. Our next question comes on the line of Michael Goldberg from Bank of Montreal. Your line is now from.
Hi, guys. Thank you for taking my question. This morning, I was wondering if there were any kind of updates for us on the CFO search.
Sure Good morning, Michael.
Yes. The we started this global search of a CFO at the end of September.
We actually received a very strong interest from the marketplace and the quality and the interest of the candidates is this is very it's very encouraging where we are right on schedule in making decisions in due course and we will.
Inform you and a market wins that decisions being made.
Okay, and then just were trying to say PR for one second or obviously the utilization is going to come down in the fourth quarter, but ill circle back.
Revenue per megawatt or revenue per turbine to come down as well given that the mexicali projects I think we're quite profitable contract.
No on a on that you know.
Revenue per megawatt spaces that whatever those are actually in operation those that the.
In terms of the revenue it stays the same you only because the.
Those turbines that is currently on the demobilization mode. Those are the ones is out of out of a a bit deployment, but wednesday coming back again any of those deployment. We have a certain you know requite good that the Ric requirement in terms the revenue per.
Megawatts as similar to the way we're looking at.
The charter rates. So you know to answer. Your question is is that we do not expect that to change.
Okay perfect. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of look well hear from capital management. Your line is now from.
Hi, good morning, too. So this is a liquid from kind of the capital punishment.
I guess I had two questions are on.
I'm sort of deploying capital that you talk about that you were very disciplined in terms of the returns that you're looking for.
I was wondering whether you could elaborate a bit on the level of marginal return.
You're targeting or whether there's a certain minimum level of return that you're targeting there.
Sure Good morning, Luke.
In terms of return.
I don't I think that if you're looking at what we have you know apart the vessels over the last 11 months.
I think that you can see the purchase price that we paid.
The.
The charter rate, we have been able to achieve and if you're looking at the the vessel type that you will be able to get an idea as to what kind of return but in general you know if we're looking at the last four vessels, we acquired in a in a third quarter I think the amount of the charter revenue that is.
Yes that is a provided through the long term charter the amount of revenue actually it's equal to the roughly equal to the purchase price. So therefore, if we are looking at that if you look at from a return of the invested capital perspective, those capital is already being returned.
Then anything above that is a return it's the additional marginal return on the on that on those investments.
In general.
The other the other reference you can see is that as I mentioned earlier, if we have not made the quality.
Investments, we will not be able to have that growth. Meanwhile de leverage at the same time still return of capital to the shareholders. So overall, we do hold a very relatively for sure.
Far above the industry average in terms of what the return on the on the under Levered and Unlevered basis.
And maybe one follow up question and so that actually I was wondering what is keeping you actually from growing faster than you're currently doing and like you mentioned yourself, you're actually de levering while growing at the same time. So what is keeping you from being more aggressive on the growth.
Is it a lack of opportunities or is lack of attractive opportunities for.
It's that discipline.
It's the disciplined because we because we hold a very high standards. So therefore, you know for those opportunities it doesn't come very often and to the country or most of all these opportunities is actually created by ourselves.
It's not we don't go to the market and taking an auction and saying that because there is a plenty of assets for sale, but those are not our pockets. We're looking for those type of opportunities where they're really you know as I had mentioned earlier from an asset perspective. It has to be good assets, specifically, it's the launch assets young.
Assets and has a good value, which were going to buy them at a discount to fair market value and also we have to look at these assets have a strong demand from our customers. That's why we're going to be able to get a long term contract patch to it and that's why from a risk adjusted return basis does this what the you know the criteria.
It will hold into and so therefore, because we are very disciplined and we only in OSV and making those investments when those opportunity arises.
And maybe my one last question in terms of market.
Market share. So I believe you mentioned that for the Seaspan business you currently have a market share around 8%.
I was wondering whether our the chartering companies are structurally gaining market share compared to the shippers over the long run and then could you give any sort of idea on where you see that market share going to in five years time.
I look at them in the market share of Seaspan.
Yes, I mean, both the market share of Seaspan, but I was also wondering whether a the leasing companies actually are gaining market share compared to the shippers in terms of owning assets or do you actually see that that's because that's what you're seeing in the container leasing industry. For example that the leasing companies are structurally.
Gaining market share, but I was wondering what that is on the vessel the container vessels chartering industry.
Okay. Yes. Thank you. Thank you. Thank you for clarifying that I think today, if you're looking at the overall container shipping market I think the total capacity still around 22 to 23 million to use and the split is still roughly about 50 50 between the liners own versus the third.
Party, whether it's a leasing company owner, operator like ourselves or some of the legacy kg structures.
I think it looks like at the leasing company is is as increasing need some market share, but at the same time and I think that.
You know because of some sale lease backs from you know whether from the liners themselves or from some other owners a a for example, so on it on a net basis I think that because the new bill it was.
It was relatively low so a lot of the changes shifting between you know the owners and also the line as in terms of the sale lease backs.
On a c. spend site you know in terms of our market share today.
We are slightly.
Below 9%.
Going forward I believe that we will continue to as we said at that to continue to grow as we grow we would expect that our market share will grow.
Certainly and.
And I think that's a yeah. That's that's that's what we see us as a as Ed said.
Future.
Okay. Thanks.
Thank you at this time showing no further questions I would like to turn the call back over to thing Chen CEO for closing remarks.
Yes. Thank you everyone for your time and we appreciate your time and questions. So on behalf of the board and management team I Hope you all stay safe and energetic and have a great weekend week ahead of you and I look forward to EPS speaking to you again in the next quarter.
Thank you ladies and gentlemen.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.
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